introduction to the sapp project advisory unit · head: sapp-pau [email protected] may 2016....

SOUTHERN AFRICAN POWER POOL1

Introduction to the SAPP Project

Advisory Unit

Omar Vajeth

Head: SAPP-PAU [email protected]

May 2016


Contents

1. Introduction and status to the SAPP project advisory unit

2. Transmission Line Financing

3. Current projects


The SAPP-PAU is a division of SAPP:

• Accountable for the preparation and implementation of agreed priority

projects in SAPP

By utilising grant funding the PAU will:

• Conduct regional analytical work,

• Screen, select, prepare and monitor the implementation of regional priority

projects, and

• Play an advisory role to SADC governments and utilities

Introduction to the SAPP-PAU


Funding from the International Development Agency (“IDA” ) has been

divided into three components:

1. Component A: Setting up the PAU under the SAPP (US$ 7 million)

which would fund the mobilization of a team (including supporting specialist)

2. Component B: Project Preparation Funds (US$10 million, initially).

The funds in this Component would be managed by the PAU. Key

focus will be on projects environmental and social performance.

3. Component C: Analytical support to SAPP (US$3 million).

This component would support analytical work to update critical non-

project specific information used by SAPP to support project

preparation, including revision of the SAPP Pool Plan.

IDA Grant Components


SAPP – PAU: A division of SAPP

CC Manager

Technical Unit

Chief Engineer

Operations Engineer

Planning Engineer

EO/PC

Chief Market Analyst

Energy Trading Officer

Energy Market Analyst

CC Manager: Support Unit

ITS FAO

Messenger

Caretaker

Accounts Officer

Head: Project Advisory Unit

Transaction Advisor

Environmental Specialist

Procurement Specialist

Financial Controller/Man

ager

SADC Liaison

Personal Assistant

Key

EO/PC = Environmental Officer

/ Project Coordinator

ITS = IT Specialist

FAO = Finance and Administration Officer

= Vacant position

Based in

Johanesburg


SAPP-PAU Status

Operational

Currently utilising temporary offices in Sunninghill - Johannesburg

The unit is operational – fully staffed

Next steps:

TOR’s being developed for Technical, Legal, Environmental, insurance and Financial (“modelling”)

advisors. These resource will be available for preparation of projects in the SAPP

Project

Zizabona - Working on funding models and structures

- To meet with sponsors to finalise structure and negotiate risk allocations

- Appoint legal advisor and finalise documentation across the project

STE/Mpanda Nkua - Currently finalising scope of work with the Sponsors

Mozisa/BOSA - Currently in execution

Other projects - Working on projects with other SAPP utilities

- There is an agreed process to release funding for project preparation.

SAPP-CC analytical support :

Pool Plan started under the PSC: SAPP-PAU to provide project management and environmental support

Environmental Management and Social Framework: being led by the SAPP-PAU with Environmental subcommittee

support.

Launched EOI for the EAPP and SAPP integration study


Transmission line financing


• One utility and one country owns assets including licenses.

• Transmission line designed, constructed and owned by Utility

• Construction done on an EPC basis, EPCM basis or on utility managed contracts

• Financing is usually done on balance sheet using corporate credit

– Debt raised on balance sheet (ECA, donors, bonds etc)

• Owner takes all risk:

– Construction risk (performance, time and cost)

– Operational risk (Availability)

– Political risk

– Force Majeure risk

– Cash flow managed via internal transfer pricing typically on a cost recovery basis plus

an acceptable return.

• The customer enters into a supply agreement and in some instances contributes towards

the cost of the line.

Typical Utility Transmission line ownership and construction

All Transmission assets in a single Country


• Some problem areas:

– Multiple ownership of the transmission line – multiple licensing with utility already

in possession of license (SPV ownership may not work in some jurisdictions)

– Multiple offtakers (could be in different countries)

– Generation availability (Capacity constraints and more problematic if anchored by

single power plant)

– Possibility of additional future generation (cost sharing) and demand

– Transmission availability impact to generation

– Impact of availability on other generation and transmission assets – EG. Cascading

faults

This leads to a complex risk allocation process– FM, network risk, buyer

default

Multi country/Utility inter-regional transmission lines

Country A Country B


Transmission Line Structuring Considerations for bankability

6

• Delink specific IPP/generation plants and Transmission projects

• What's is need is an underlying PPA that builds the business case for the transmission line

• The risk of generation capacity availability must not rest with the Transmission Line

• Follow a “Ship” or pay principle as used for pipelines (Take or pay)

• Offtakers agree to buy capacity on the line for the duration of the debt period plus a “tail”

• Multiple offtakers of “Transmission Capacity” need to be prioritise.

• Offtaker to be credit enhanced via government support arrangements where needed

• Unlock DFI/concessionary and donor funding first then commercial debt. Transmission lines need lowest-

cost funding

• Risk Allocations need to addressed –Force majuare, termination

• Critical factor: the transmission line is not dependent on energy charges for cash flow. Irrespective of

funding source there will always be a need for firm dependable cash flows.

The objective is a bankable wheeling agreement


Funding Structures

7


Typical Traditional Transmission line funding via corporate debt

All liquidity pools will need to be tapped for the project

Provision

of cover

DFI’s ECA’s

Direct Direct

Lending Lending

UTILITIES AS DIRECT BORROWERS

Government

Support

Government

Capital Markets

9

Financial

Institutions

Direct

Lending

Project


Project Finance

Provision

of cover

DFI’s

Direct

Lending

Transmission Project

Government

Support

Government

ECA’s

Direct

Lending

Capital Markets

Financial

Institutions

Direct

Lending

Utility Equity or

Private sector

equity

8

All liquidity pools will need to be tapped for the project


Transmission Line Financing

• Combination of the two funding structures

Ring-fence the utility borrowing

Capital Structure for the

project informed by cash

flows and credit

considerations


Project status - Details


STE – Mozambique Backbone and Mpande Nkua

The project has been “resuscitated” by the

Government of Mozambique

Engaging with UTIP, the GOM, EDM, and HCB

on support that can be provided.

Technical and environmental work has been

progressed substantially – revision required

Role Project Party

Sponsors EDM

HCB

Transaction Advisor To be appointed

Other Stakeholders SADC, SAPP, ESKOM, Regional

Utilities

Financiers Still to be determined – donors

expressed interest

Project Management UTIP – Government department

SAPP-PAU involvement being

discussedPro

jec

t S

tak

eh

old

ers

:


Zimbabwe – Zambia – Botswana – Namibia (ZIZABONA)

Project Scope:

Phase 1: Hwange-Victoria Falls-Livingstone line, utilizing the

existing ZESA-NamPower 80MW PPA (15year) and the

existing 220kV Livingstone-Zambezi –Caprivi lines

Phase 2: Victoria Falls-Pandamatenga and Livingstone-Zambezi

lines.

Project Cost:

Total Cost USD 223 million

First phase USD 33 million

Project Status:

Consultants were appointed for the 3 packages with funding from

the AfDB

Transaction Advisor (TA), Fitchner to complete scoping and

preparation of tender documents for the EPC contractor

ESIA completed in Botswana, Namibia & Zimbabwe

Next steps

• Updated structure being discussed and negotiated with Sponsors

• Legal workstream to start finalising contractual structure.

• Financial model development

101km

76km

231km

Role Project Party

Sponsors ZESA (Zimbabwe)

ZESCO (Zambia)

BPC (Botswana)

NamPower (Namibia)

Transaction Advisors Fitchner (current Advisor)

Environmental

Consultants

SWECO (ESIA for line in Zambia)

Financiers African Development Bank (AfDB)

Norway/Sweden Trust Fund

Project Management SAPP CC (via SAPP-PAU)

Pro

ject

Sta

keh

old

ers

:


Mozambique – Zimbabwe – South Africa (MOZISA)

Project Scope:

935 KM of 400 KV transmission line across

three countries

Project Cost:

Estimated Total project cost will be US$342.2

million made up of the following components

US$132.2 million (Zimbabwe – Mozambique),

US$210 million (Zimbabwe South Africa)

Expected Benefits

Mozambique excess capacity to be traded in

the region.

Increase capacity in Zimbabwe unlocking

bottlenecks

Project Status:

Inception Report to be completed

Feasibility Report is in progress

ESIA is in progress

Steady State Modelling has commenced

transmission line route being finalised

Role Project Party

Sponsors EDM (Mozambique

ZESA (Zimbabwe)

Eskom (South Africa

Transaction Advisors KPMG Services Proprietary Limited,

Trans-Africa Project (Pty) Limited (TAP) – Technical

GIBB (Pty) Limited – Environmental Studies

Norton Rose Fulbright - Legal

Sub-Contractors Baagi Environmental Consultancy

Financiers Development Bank of Southern Africa (DBSA)

KfW

Project Management SAPP CC (via SAPP-PAU)Pro

jec

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Botswana – South Africa (BOSA) Interconnector

Project Scope:

Close to 560 KM of transmission line to be

built and operated at 400KV

Total Project cost

Still do be determined

Status

Aurecon appointed as Transaction Advisor

Project Kick-off meeting held

Project Steering Committee comprising the key

project stakeholders to be established

Training component including transfer of skills to

the utilities and SAPP will be proposed

Role Project Party

Sponsors BPC (Botswana)

Eskom (South Africa)

Transaction Advisor Aurecon (Technical)

Herbert Smith Freehills (Legal)

EOH (Environment)

J Maynard Project Advisory Services

Financiers DBSA

Project Management SAPP CC (via SAPP-PAU)Pro

ject

Sta

keh

old

ers

:


Conclusion

• The SAPP-PAU is a division of SAPP. It is not a new

organisation.

• High risk development funds and resources have been made

available to the region for power projects.

• It is a great opportunity to unlock projects and drive them

forward.


THANK YOU

introduction to the sapp project advisory unit · head: sapp-pau [email protected] may 2016....

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